Watch out for the entrepreneur

Watch out for the entrepreneurAlmost without exception, entrepreneurs make really bad employees, so if you are in the acquisition business, be warned. Not that this should come as a surprise to another entrepreneur. After all, the very nature of the entrepreneur is that they carve out their own future. Working for someone else is really not on the agenda.

I recall my very first Chairman, a person with considerable large corporate M&A experience, saying that they always got rid of the entrepreneur as soon as possible. When I asked him why, he commented that they really didn’t fit into a corporate structure (unless they were at the top). They resented having to be accountable, didn’t like committee decision-making and absolutely didn’t like to have to wait to get permission to do something.

However, it is not just the decision style of the entrepreneur which fails to fit into a corporate culture, you need to put yourself into the shoes of the entrepreneur once the deal is done. They usually have worked for many years to build value in the business and almost certainly want to take a break. Remember that they are now cashed up so the ‘fire in the belly’ is now gone. They don’t need the job. They now have sufficient wealth to do whatever they want to do and the last thing on their mind is taking orders. They may well have another venture they wish to pursue, another business on the side they want to put their efforts into or they may simply want to take time to give back to their community in some way through a not-for-profit involvement. Many would rather try their hand at angel investing and get caught up in the excitement of building another business with others.

This scenario is not always the outcome but it has a high probability of happening. Whatever you do, you need to take into account that you do need to move loyalties to the new owner; you may need to introduce new reporting lines and new performance disciplines. In the end, you are almost always better off moving the entrepreneur into a different role inside the organisation away from their baby, or simply see them out the door and let them get on with their new life.

You also should recognise that a similar case can be made for most of the senior executives. Most will have enjoyed working at the top level in a small company and won’t find it conducive to work inside a large corporation. Also remember that many of them will cash up at the same time as the entrepreneur and their future agenda may be very different from yours.

You simply have to be realistic and recognise that you will either want most of the senior team to leave or they will leave of their own accord. What this means for your acquisition strategy is that you need to build this potential loss into your evaluation and be sure that you can achieve the acquisition benefits without them.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.

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